This and previous notes can be found atSubstack ( Asian Market Sense )
Check out ERI-C.com for your research needs
Market opened higher testing 7,430 in early trades but then sold down through the session before finding support at 7,380 around 1pm and then worked better. Currently +32pts (+0.4%) @ 7,402
Sentiment encourages by the easing of lockdowns and the framework for more. Santos and Oil Search finalise terms for their $21bn merger.
Miners BHP and Fortescue see a bounce back along with Energy and Tech names. Healthcare weak.
Nikkei opened higher but saw a muted start (Big SQ on the open) and traded sideways until 10:30am when markets moved higher and then rallied to 30,380 before easing back slightly into lunch. PM market opened lowed and trending lower. Financials in focus; with the SBI +8% hostile bid for Shinsei untraded in the AM stop high. Also +VE Tech, Materials. Laggards Utilities, Energy and Healthcare.
Topix traded in a similar fashion currently +20pts (+1%) @2,085
May see some caution ahead of weekend Also pre market Monday PPI and BSI Large Manufacturing data.
KDCA reported 1,892 new covid cases (-157 DoD)
Kospi opened higher and tested 3,132 in early trades before reversing to 3,104. Then worked higher with resistance at 3,130 level. Currently +12pts (+0.4%) @ 3,129
Foreigners selling internet names
Local Institutions bargain hunting
Kakao Bank continued weakness; was a shortable stock from today.
Kosdaq traded in a similar pattern currently +4pts (+0.4%) @ 1,039
Taiex opened lower but worked higher on news of stimulus voucher distriution and covid budget; Hit resistance at 17,455 around 10:45am; pulled back and then traded sideways around 17,400 level. Currently +112pts (+0.7%) 2 17,409. TSMC sales numbers after market.
CSI 300 opened flat but rallied in the morning session to 5,040 level on news of a phone call between Presidents Biden and Xi but then pulled back to 4,985 before rebounding into lunch +50pts (+1%) @ 5,020
Pre market opened @ 25,871; +155pts vs +45pts ADR’s. Market then rallied on news of a phone call between President Biden and Xi. Also Ecommerce names made a rebound although mixed; Tencent and NetEase remain relatively weak vs others but both seeing high voumes again. SHKP moved higher after yesterdays results. Macau names remain weak.
Europe Focus will be on the data.
Ahead Germany Inflation Rate
France Industrial Production
UK Balance of Trade, Construction Output, Industrial Production, Manufacturing Production, GDP, GDP 3 Month Ave, Goods Trade Balance, NIESR Monthly GDP Tracker.
Opened Dow -8 pts. S&P and Nasdaq futures flat.
Ahead PPI, Core PPI, Wholesale Inventories, WASDE Report, Baker Hughes Rig Count.
News that Presidents Biden and Xi held a 90 minute phone conversation prompted a market rally. Whilst details are only slowly emerging it is clear that this is an important step towards a potentially better relationship between the two nations and would be important for the global economy.
It appears that the call was instigated by President Biden who is frustrated by China’s lack of engagement with US officials to date. China will be pleased that its actions have prompted a response but for Biden, as a veteran politician, (and he has met with Xi before, whne he was vice president) it will be more about getting to the final deal. Reports say that the discussions were broad and frank.
The bloomberg article notes that the US has criticised China’s policy of linking transnational and bilateral matters; holding some matters hostage to matters that are totally unrelated save that they refer to China.
It could lead to a face to face meeting at the G20 meeting in late October although President Xi has not confirmed his attendance, citing covid concerns.
Economist articles concerning Asia
September surprise Suga Yoshihide’s resignation heralds an era of uncertainty for Japan The ruling party’s next president will lead it into lower-house elections in November
Codified crackdown China has become a laboratory for the regulation of digital technology There are new protections, but not from the Communist Party
Talkin’ ‘bout a revolution A provocative blog post stirs up a firestorm in China No one knows how far Xi Jinping’s campaign against inequality will go
Chaguan A new book looks behind Xi Jinping’s anti-corruption campaign And shows that princelings are still exempt Looks at “Red Roulette: An Insider’s Story of Wealth, Power, Corruption and Vengeance in Today’s China”,
On the up A coup in Guinea adds fuel to aluminium’s red-hot rally
But developments in China, not Africa, could matter more for the metal’s price
Home comforts China turns to new stock exchanges to channel finance to innovative firms As foreign listings become harder to pull off, Xi Jinping hopes to make domestic ones easier
FT Front Page
On thin ice Big melt raises tsunami risk
Ice floats freely in the port of Ilulissat in Greenland where the thinning ice cap risks triggering earthquakes and a north Atlantic tsunami, says one leading scientist.
Inside read Climate change tsunami fears grow
Expert warns of quake risks caused by melting ice sheets in Greenland
ECB to slow crisis-era support as confidence grows in recovery
• Fewer bonds to be bought • Eurozone ‘not out of woods’ • Other banks already tapering
Taking what appears to be a pragmatic view; not tapering but slowing and leaving the door open for a reversal of policy if the data changes.
She also noted that companies were not borrowing becuase they had borrowed heavily in the early stages. What I think is clear though is that there isn’t end demand for the consumer. I think banks need to think more about stimuluating that consumer demand. One way would be raise interest rates and incentise savers to spend from gains rather than capital.
Wood’s Ark funds retreat from China as regulators tighten crackdown on profits.
She is focused on companies that are in-line with government policy which is what I was putting forward in the peice on Dual Circulation and common prosperity. Her approach makes sense for those who want or need to continue exposure to China. I still think a lot of the market believes these current policies are short term. But I think these will be with us for years; the last real revision was 1987 and the Great External Circulation. She correct assesses that ‘the environment in China was “quite different” from the one that many global asset managers had poured funds into late last year. Chinese authorities were focusing on social issues and social engineering at the expense of capital markets, she said. Anything deemed by Beijing as too profitable was at risk of being torpedoed.’
I still think a lot of portfolio managers have yet to grasp that although its worth noting that the volume of shares traded in Tencent was +64% DoD Thursday and that followed +32% DoD Wednesday and Tuesday was an average day. Netease yesterday the volume was +488% DoD.
A further factor to bear in mind is that unwinding of general ETF’s that hold these names can have a knock on effect to the wider market.
Read also China’s games crackdown bites NetEase and Tencent ‘Shares in Tencent and NetEase fell sharply after authorities ordered the Chinese technology companies to pivot from focusing on profits in online gaming and on reports that Beijing had halted approvals for new games.’
Companies & Markets
SBI Holdings in potentially hostile move on Shinsei
Worth a read because this is another case of an unsolicited bid which has been taboo in Japan. There is twist which is that SBI’s chief executive, Yoshitaka Kitao, is UK-educated; which could explain the variance. The question is whether the more mainstream, Japanese educated business leaders embrace the move.
Well worth a read.
China to sell oil from strategic reserves in fight against inflationary pressures
An interesting move and another example of China seeking to use its reserves to try and reign in inflation. The question is whether it will be effective.
The State Bureau of Grain and Material Reserves said yesterday that it would release batches of oil for sale to domestic refining and chemicals companies to “alleviate the pressure of rising raw material prices”. “Putting national reserve crude oil on the market through open auction sales will better stabilise domestic market supply and demand and effectively guarantee national energy security,”
So far releasing other reserves has had limited impact. But in the theme of Dual Circulation it underlines China’s need for self sufficiency. With China now being the world’s biggest importer of oil that will be a challenge. The article notes that China has sold oil from its reserves before but quietly so this could be more of a warning shot to OPEC + whom it may think has allowed oil to rise too quickly.
Worth noting that oil is only one oft the inflationary pressures on China; iron ore, coal, along with food imports as African Swine Flu remains an issue and the curtailment of beef imports due to mad cow disease. We have also yet to see the full impact of the floods earlier in the year on the crop yields.
LEX Aluminium/Chalco: the white metal for EVs
‘Paradoxically, energy-intense aluminium is becoming a crucial material in the race to achieve net zero emissions. This should support prices that have jumped on input cost rises’.
Notes that the recent profit jump is likely to continue but power shortges and calls for reduced consumption will impact its business. But for Chalco; it ‘has shown it does not need to increase production steeply to achieve profit growth. First-half figures show sales are heavily geared on the price of aluminium, less on output.’
Demand out look is strong.
Concludes ‘The shares reflect that outlook. Chalco stock is up 149 per cent this year to trade at 14 times forward earnings. Local peer China Hongqiao Group is cheaper but more exposed to potential losses in Guinea, where a coup imperils heavy investment in bauxite mining.’